Ever since the Budget, it has been apparent that the Government’s commitment to tackling tax avoidance is more than simply rhetorical. One of the main ways to engage in such avoidance is, as we report today, to funnel money through a charity – often based abroad – with little evidence that the money has been put to philanthropic use. This was, in large part, the rationale behind the Chancellor’s decision to restrict the tax relief on charitable giving to a maximum of £50,000, or a quarter of the donor’s income, if that is greater.

It is understandable that the Government wishes to maximise its revenue, and ensure that all pay their share. Yet this sits uncomfortably with its expressed wish to encourage philanthropy – and in particular, to foster a culture of giving akin to America’s, where donations run at twice the level seen here.

Although some rules are imposed on tax relief in the US, the system – and the culture – is much more favourable to philanthropy. And while Mr Osborne’s measures may cut tax avoidance, they will inevitably make it less attractive to give money to good causes than it has been in the past. As Sir Nicholas Hytner, head of the National Theatre, said yesterday, it is easier for such institutions to raise money in the US than in the UK. He disclosed that an individual who had intended to donate £250,000 to the theatre was now reconsidering, in light of the Budget announcement.

Encouraging greater philanthropy is not just about tax arrangements – it is about celebrating and honouring those who give, and in the process making it an expected social and cultural norm for the rich to support good causes. Yet the public narrative, when it comes to wealth and wealth creation, has all too often undermined any such sentiment. Before the Budget, there was an emphasis on the perceived immorality of prosperity, with talk of tycoon and mansion taxes helping to create a dangerously anti-capitalist mood. Similarly, slashing tax relief – rather than reshaping the system to correct the most egregious abuses – suggests that the rich give money simply to avoid a hefty tax bill, rather than as an act of altruism. The wealthiest one per cent of the country already pay a quarter of all income tax, and see much of this money wasted by government on an industrial scale. Why remove their incentive to contribute elsewhere?

David Cameron’s vaunted Big Society cannot work without a flourishing charitable sector taking on the role vacated by the state. If the Coalition really is committed to smaller government, then making people less likely to give money by treating large charitable donations as a form of tax evasion is an odd way of proceeding. Mr Osborne should think again.